Is Africa Still Being Looted? A Debate Dodging World Bank Schizophrenia

The continent’s own elites, together with the West and now China are still making Africans progressively poorer, thanks to the extraction of raw materials. Reinvestment is negligible and the prices, royalties and taxes paid are inadequate to compensate the wasting away of Africa’s natural wealth. Anti-extraction campaigns by (un)civil society are the only hope for a reversal of these neocolonial relations.

Though it’s easy to prove, using even the World Bank’s main study of natural resource economics, apparently the looting allegation is controversial. When I made it during a Canadian Broadcasting Corporation (CBC) interview last week (http://www.cbc.ca/thecurrent/2010/08/august-10-2010.html), the World Bank’s chief economist for Africa, Shanta Devarajan, immediately contradicted me, claiming (twice) that I am not in command of ‘the facts’.

Here’s how it went:

Patrick Bond: Africa is suffering neocolonialism, and that means the basic trend of exporting raw materials, and cash crops, minerals, petroleum, has gotten worse. And that’s really left Africa poorer per person in much of the continent, than even at independence. The idea that there’s steady growth in Africa is very misleading, and it really represents the abuse of economic concepts by politicians, by economists, who factor out society and the environment. And it’s mainly a myth, because, really, the extraction of non-renewable resources – those resources will never be available for future generations. And there’s very little reinvestment, and very little broadening of the economy into an industrial project or even a services economy.

CBC: Mr Devarajan, how would you respond to that view?

Shanta Devarajan: First, I just want to correct one of the facts, which is that the continent is not poorer per person. GDP per capita is not lower today than it was ten to fifteen years ago. In fact, it is considerably higher.

Here, Devarajan abuses the discussion about African poverty by using the Gross Domestic Product (GDP) measure, even though just seconds earlier I had warned against doing so. African economies suffer extreme distortions caused by the export of irreplaceable minerals, petroleum and hard-wood timber. Were he honest, Devarajan would confess that GDP calculates such exports as a solely positive process (a credit), without a corresponding debit on the books of a country’s natural capital.

Seeking a less biased wealth accounting – i.e., by factoring in society and the environment so as to calculate a country’s ‘genuine savings’ from year to year – we find that Africa gets progressively poorer. This was demonstrated in even the World Bank’s own book, Where is the Wealth of Nations?, published four years ago (and still available on the Bank website).

According to the book’s authors, “Genuine saving provides a much broader indicator of sustainability by valuing changes in natural resources, environmental quality, and human capital, in addition to the traditional measure of changes in produced assets. Negative genuine saving rates imply that total wealth is in decline.”

The researchers are conservative in their assumptions, but once they factor in society and the environment, Africa’s most populous country, Nigeria, fell from a GDP in 2000 of $297 per person to negative $210 in genuine savings, mainly because the value of oil extracted was subtracted its net wealth.

Even the most industrialized African country, South Africa, suffers from resource curse: instead of a per person GDP of $2837 in 2000, the more reasonable way to measure wealth results in genuine savings declining to negative $2 per person that year. From 2001, the problem became even more acute thanks to the delisting of the largest corporations from the Johannesburg Stock Exchange, which added not just the outflow of mineral wealth, but also of profits and dividends that in earlier years would have been retained in South Africa.

(SA president Jacob Zuma approved these policies and he is still relaxing exchange controls, thus permitting further wealth outflow. It was the height of United Nations incompetence or irony that Zuma was last week named as co-chair of Ban Ki-moon’s new panel on global sustainability, “tasked with finding ways to lift people out of poverty while tackling climate change and ensuring that economic development is environmentally friendly.” And after the United Nations climate summit in Cancun fails in December 2010, a year later Zuma will host the crucial Johannesburg follow-up to the Kyoto Protocol, whose targets of 5 percent emissions reduction expire in 2012. What might we expect? Beholden as he is to mining/smelting capital, with his son and nephew seeking mineral-tycoon status, Zuma signed the Copenhagen Accord last December. But this mainly confirmed that his climate-vulnerable kin in rural Zululand will suffer so that Melbourne and London shareholders of BHP Billiton and Anglo American can continue receiving the world’s cheapest electricity, from South Africa’s rapidly-expanding coal-fired power generators. Just so you are warned.)

As commodity prices soared from 2002-08, the outflow of wealth was amplified. But dating to the independence of so many countries over the past five decades, the story is the same: Africa looted in a manner that even World Bank environmental staff are openly confessing, even if Devarajan has (consciously or subsconsciously) ignored their research. Hence it is misleading to the point of mischievousness for Devarajan to contradict my assertion that Africans are getting poorer.

The interview then turned to public policies associated with the looting of Africa.

CBC: The World Bank gets a lot of heat for your structural readjustment programme from some quarters. And that is when you offer to countries interest-free loans but they’re contingent on some pretty severe austerity measures that some people say can be counterproductive because they hurt the economies in question more than they help them. And you’ve been criticized, notably, by economists like Patrick Bond and I’d like you to listen one more time to something he’s told us.

Patrick Bond: The World Bank and also the International Monetary Fund, they sort of fooled us, in 2008-2009, because they seemed to shift their ideology away from a very hard-core agenda of promoting markets above everything else. And for a time it seems they were promoting government deficits and a Keynesian strategy: government should step in when the private sector fails. But now it seems like it’s back to business as usual, namely export orientation and austerity. And the World Bank, led by President Robert Zoellick who had come from the Bush Administration – he worked for Enron and for Goldman Sachs – this sort of leadership, and the Northern orientation and the banker mentality, means that the only way forward is to get away from these institutions, maybe to default on their debt, to kick them out of the country. And Latin America provides a good model for doing both of those things.

CBC: And in fact some Latin American countries, Argentina, successfully told the institutions like yourself and the IMF to take a hike, and in fact it ended up doing them a lot of good. So how do you respond to someone like Patrick Bond?

Shanta Devarajan: Oh I think again that we have to look at the facts. There’s no question that the structural adjustment policies of the 1980s and early 1990s received a lot of criticism. But then ask the question, ‘what changed?’ As I was saying, the growth has accelerated since the 1990s. We can’t hide from that fact. And you look at what changed. And it’s that these countries adopted exactly the Washington Consensus policies in the mid-1990s, the African countries. The difference is that they did it out of their own accord, out of domestic political consensus, rather than imposed from Washington or Paris or London. And I think that’s the point that people are not recognizing, that the actual policies that are generating the growth, are actually very similar to what was criticized in the structural adjustment era.

Again, African GDP growth may have accelerated as commodity prices rose, but Africa became poorer once we calculate the net wealth effect and genuine savings. Devarajan can’t hide from that fact.

To disguise this by saying that structural adjustment did not work before the mid-1990s because it was ‘imposed’ by Devarajan’s colleagues, but did work after the mid-1990s because it was adopted through a ‘domestic political consensus’, is the most bizarre claim I’ve ever heard about African macroeconomics. There has never been a political consensus to structurally-adjust Africa, aside from the permanent problem of unpatriotic elites who are more closely allied with Washington, Paris, London, Brussels and Beijing string-pullers than with their subjects (a problem which in his 1961 book The Wretched of the Earth, Frantz Fanon so eloquently brought to our attention).

The Bank’s 2006 book mentions one obvious policy conclusion, learning from a country with petroleum resources that did not fall victim to resource curse: “Norway has used the flow accounts for energy and greenhouse gas emissions to assess a policy that many countries are considering: changing the structure of taxes to increase taxes on emissions and resource use.”

But liberalization imposed by the World Bank’s lending staff does precisely the opposite. This is the sort of schizophrenia we have come to expect from Bank researchers who arrive at common-sense ‘talk-left’ conclusions, such as that extracting resources from Africa leaves the continent poorer. But it is not surprising that Devarajan and World Bank operational staff ‘walk right’ when it counts, in interviews with gullible journalists like CBC’s Mike Finnerty (who failed to follow up on either of Devarajan’s whoppers) and when imposing neoliberal policies on wretched African elites.

In this context, the only encouraging signs are the myriad of challenges to extractive industries by activists who often put their bodies on the line in sites of sustained state and corporate violence like the Eastern DRC where human rights watchdogs struggle to document the murder of approximately five million people, Zimbabwe’s Marange diamond mines, South Africa’s Limpopo and Northwest Province platinum fields and the Eastern Cape’s titanium-rich Xolobeni beaches, the Niger Delta’s oil-soaked creeks and Chad’s oil fields, Firestone’s Liberian plantations, Lesotho’s dams supplying Johannesburg’s hedonistic water consumers, and other dam displacement zones including Gibe in Ethiopia, Mphanda Nkuwa in Mozambique and Bujagali in Uganda, to name just a few.

Because World Bank officials can be counted on to ignore their own research and hence continue promoting non-renewable resource exports; because this arrangement suits multinational corporations and donor agencies; and because African elites will continue taking this advice (often with sweetener bribes as was the case of the African National Congress’ role in the Medupi power plant controversy, funded by the Bank’s largest-ever project loan, for $3.75 billion, in April 2010), Africa will grow progressively poorer.

The African networks of civil society which promote ‘publish what you pay’ and other gambits for transparency, participation and human rights should finally come to the realization that this system of looting is not going to be reformed under the prevailing balance of power, and that much more forceful resistance to extraction is required – and is underway.

(Patrick Bond directs the Centre for Civil Society at the University of KwaZulu-Natal – http://www.ukzn.ac.za/ccs – and from September will be on sabbatical at the University of California/Berkeley Department of Geography.)